The euro is consolidating after falling to a four month low of $1.2829 in the US session on Tuesday on concerns over the euro zone debt crisis and euphoria over the Cyprus bailout deal has faded.
On Monday, the euro reversed gains and fell sharply after markets got spooked by comments from the Eurogroup chief, Jeroen Dijsselbloem, who said the rescue plan will serve as a “template” and model for dealing with future banking crises in the euro zone. Eventhough he later appeared to backtrack on his comments, saying Cyprus was a specific case with exceptional challenges, this was not enough to help restore investor confidence.
During the Asian trade the pair consolidated losses, currently trading at $1.2870.
The euro had initially risen on Monday to $1.3047 in a knee-jerk reaction to what was deemed a successful Eurogroup meeting of euro zone finance ministers on Sunday.
The single currency has fallen more than 6 percent from a peak of $1.3709 reached on February 1st.
Also weighing on the euro is speculation of a credit rating downgrade on Italy, which is still struggling to form a government after inconclusive elections last month. Moody’s rates Italy Baa2, two notches above junk status, with a negative outlook.
Against the yen, the euro fell a one-month low of 120.07 yen on Monday before steadying near 121.00 today.
Dollar also suffered against the yen, falling to a low of 93.52 yen yesterday before steadying at around 94.20 yen. On March 12, USDJPY had peaked at a 3-1/2 year high of 96.69. That was because investors had sold the yen on anticipation of more aggressive policies from the Bank of Japan to defeat deflation once and for all.
However in the longer term, yen is expected to weaken further. It is expected that the BOJ will expand its stimulus programme at the next scheduled meeting on April 3-4.
The Australian dollar was steady today, being well supported by the Reserve Bank of Australia’s cautiously optimistic view on Australia’s economy. AUDUSD last traded at $1.0466 after having reached a two-month high of $1.0478 on Monday.